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Magellan moves to cash

Magellan has increased the cash weighting in its Global Equity Fund on the back of global economic concerns.

Wednesday, August 20th 2014, 4:02PM

Lead portfolio manager Hamish Douglass says cash now sits at about 10% in this and other funds the firm runs.

The last time Magellan materially increased its cash weighting was at the start of the European sovereign debt crisis in early 2010.

“We are lifting our cash weighting to increase the defensiveness of our portfolio in response to the massive compression in risk premia across multiple asset classes over the last 18 months.

"We believe there is an elevated probability that this risk compression will unwind over the next 12 months or so as the US Federal Reserve ends Quantitative Easing (QE) and investors focus on a normalisation of US interest rates. An unwind of the compression of risk premia combined with rising long-term
interest rates could lead to a material correction in credit and equity markets," he says in an update to advisers.

"While we are not predicting that there will be a market crash, we consider it prudent to be cautious as it is unknown how investors will react when US interest rates start to normalise."

“At this point in the cycle we believe it is prudent to increase the cash weighting in our Global Equity Strategy. This will provide some additional protection for investors against the risk of a material market correction.”

Holding cash will also generate ‘option value’ for the Strategy to invest in attractive opportunities that may arise in any equity market correction, he says.

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